Full text of "Poland: Organized Crime and the Financial Crisis. Recent Trends in the Baltic Sea Region"

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K. Raczkowski, G. Got^biowski, Poland: Organized Crime and the Financial Crisis. Recent Trends in the
Baltic Sea Region, [in:] W. Kego, E. Leijonmarck, A. Molcean, Organized Crime and the Financial Crisis.
Recent Trends in the Baltic Sea Region, Institute for Security and Development Policy, Stockholm 201 1 ,
ss. 85-110.

Poland

Konrad Raczkowski and Grzegorz Golebiowski
The Polish Economy Before the Financial Crisis

The Polish economy has maintained a relatively high growth rate since 2004
(see Table 1). This rise has embraced all the major sectors of the economy
namely services, manufacturing and construction. EU accession provided
Poland with solid foundations for prosperity. Entering the institutional
structures of the EU led to significant increases in exports which in turn
stimulated the growth of production and employment. In consequence,
domestic consumer demand was sustained.

Table 1. Growth Rate of GDP and Domestic Demand in 2006-2008 (%, fixed
prices)

Year

Consumption

Accumulation

Domestic
demand

Foreign trade

GDP

Including

Including
Ni

2006

5,2

5,0

6,1

16,1

14,9

7,3

14,6

17,3

6,2

2007

4,7

5,0

3,7

23,7

17,6

8,6

9,1

13,6

6,7

2008

4,1

5,4

0,0

7,7

7,9

5,0

5,8

6,2

4,8

K=Overall consumption, Ki=Individual consumption, Kz=Collective consumption,
A=Gross accumulation, Ni=Gross expenditure on fixed assets, E=Export of goods
and services, I=Import of goods and services.

Source: The first 5 years of Poland in the EU (Warsaw: Ministry of Economy, 2009).

Rising domestic demand along with increasing use of EU funding stim-
ulated a growth in investments in enterprise. The high level of investment
growth (accumulation) attained a peak in 2007. It is worthwhile combin-
ing these facts with an analysis of supply factors for economic growth in
Poland. The conclusions drawn in studies show that from this perspec-

Poland

tive the major stimulus was the rapid rise of the total factor productivity
observed in Poland. 1

In 2007, before the financial downturn brought about by the collapse of
the real estate market in the United States the Polish economy was charac-
terized by high domestic demand, rapid growth, a high rate of increase in
investments and consumption (especially individual consumption), and a
relatively solid total factor productivity accompanied these shifts.

Impact of the Crisis on the Polish Economy

During the initial phase of the financial crisis (from mid-2007) many coun-
tries launched special bailout programs for financial institutions threatened
by insolvency. These involved recapitalization of banks, direct budget loans
for the financial sector and direct redemption of non-liquid (called toxic)
financial assets from financial institutions. In successive phases, many gov-
ernments initiated stabilization programmes. With respect to budget rev-
enues, measures consisted of allowances and tax exemptions, whereas for
expenditures the initiatives involved increasing public finance for invest-
ments (primarily structural).

The first symptoms of the financial crisis in Poland became apparent in
mid-2008. To a large extent, this was connected to the psychological effect
surrounding the crisis over liquidity in the banking sector. The Warsaw
Stock Exchange followed the global pattern where all indexes plummeted
(see Table 2).

Table 2. Selected Stock Exchange Statistics in Poland, 2006-9

Year

Capitalization of Domestic
Companies (million zl)

Number of
Companies

Trade in Shares
(million zl)

2006

437,719

284

338,696

2007

509,887

351

479,480

2008

267,359

374

331,316

2009

421,178

379

351,885

Source: Warsaw Stock Exchange

Adam Giegiel, "Dynamics of the Polish economy in the light of endogenic growth
models," in Sylwia Pangsy-Kania and Krzysztof Piech, eds., Innovation in Poland from the
regional perspective: New theories, the role of EU funds and clusters (Warsaw: Instytut Wiedzy
i Innowacji, 2008).

Organized Crime and the Financial Crisis

During the period when the risk on the financial market increased, it
became very difficult to acquire capital from the stock exchange market.
Plans to offer new shares on the stock exchange failed. Most companies that
sought to raise capital in this manner withdrew their offers. In 2007, 81 com-
panies got listed in the stock exchange, resulting in an acquisition of capital
on new stock issues amounting to 15.4 million zlotys. In 2008, the number of
debuts dropped to only 33 and in 2009 further decreased to just 13. In 2008,
the value of new share issues amounted to 3,665,000 zlotys. Share trading
shrank in 2008, compared to the trading in 2007.

In 2008, when the symptoms of the financial crisis in Poland became
obvious, there were strong adjustments to the rates of virtually all financial
instruments traded on the securities market. This resulted in a decline of
capitalization for domestic companies in 2008. It fell from 509,887,000 zlotys
in 2007 to a total of 276,356,000 zlotys.

Companies faced difficulties raising capital. Investors were reluctant
to purchase shares on the stock exchange. The high financial risks facing
the banking sector led to a tightening of criteria for granting loans and an
increase in margins. Following uncertainty in the wake of the collapse of the
investment bank Lehman Brothers, transactions on the inter-bank market
in Poland were limited to short-term transactions, mainly overnight. Banks
ceased concluding transactions involving long-term deposits. The premium
for credit risk included in short-term interest rates was far lower in Poland
than both the American dollar and euro markets. Trade on the money mar-
ket fell slightly. Yet it did not lead to an immediate rise in the number of
business bankruptcies, even though their overall economic-financial stand-
ing deteriorated (see Table 3).

Table 3. Number of Business Bankruptcies in Poland, 2006-9

2006

2007

2008

2009

648

480

420

673

Source: Own study based on Euler Hermes 2010

What is just as interesting is that the number of companies that col-
lapsed in Poland decreased in both 2007 and 2008. However, it should
be underlined that these figures show the effects of the situation several
months before. It can be partly explained by delays in management and

Poland

shareholders filing bankruptcies, and partly by administrative delay for
instance the time taken by a court to grant the relevant decree. Therefore,
the almost 60 percent increase in the number of bankruptcies reported in
2009 is presumably a result of market problems faced in 2008. The estimated
data for 2010, and the forecasts for 2011, show that the number of bankrupt-
cies in Poland may soar in comparison with 2009 (perhaps up to 1500 bank-
ruptcies by the end of 2010 and over 2000 in 2011).

If the unemployment rate in Poland over the same period is reviewed, a
similar correlation is found. There was no increase in the number of people
registering as unemployed until 2009 (see Table 4).

Table 4. Unemployment Rate in Poland, 2006-9 (%)

2006

2007

2008

2009

13.9

9.6

7.1

8.2

Source: Eurostat

The depreciation of the Polish zloty during the period of intensified
symptoms of the crisis (see Table 5) was a mitigating factor behind the eco-
nomic events described. It permitted the Polish economy to reap benefits
from exports (the competitiveness of Polish products improved) and thus
in part to appropriate financial resources resulting from stabilization pro-
grams implemented in other countries of the region, particularly in Ger-
many. For example, it sustained demand for new cars in Poland through-
out the second half of 2008. Many of the cars were purchased by foreigners
entering Poland, mainly over the Western border.

Table 5. Rate of the Zloty against the Euro

2006

2007

2008

2009

3.8959

3.7837

3.5121

4.3276

Source: Eurostat

There were also, of course, negative effects to having this foreign
exchange rate. The zloty's depreciation during the second half of 2008
brought about a rise of its value in debt denominated in foreign currencies
and, in the case of enterprises, led to considerable losses in connection with
option transactions that had been concluded earlier. This was reflected in

Organized Crime and the Financial Crisis

negative financial results for enterprises in late 2008 and at the beginning of
2009. The phenomenon was halted in the second quarter of 2009. This was
possibly due to relatively stable sales performances as well as the return on
sales.

The crucial reason behind the weakness of the Polish zloty was the pro-
nounced deterioration of the economic situation in Hungary Ukraine and
the Baltic states that led to the sale of the majority of the region's curren-
cies, including the Polish zloty. At that time there were, in principle, no fun-
damental factors hinting at vulnerability in the Polish economy that might
trigger a depreciation of its currency. Therefore, the Polish government did
not actively plan or undertake intervention. Or at least not on the same scale
as many Western European states did. As part of anti-crisis initiatives the
government offered virtually the only support programme for financial
institutions.

The government activities within the above program (see Figure 1)
included direct financial assistance by means of loans or sale of treasury
securities for commercial banks with deferred payment through resched-
uling or timing of repayments; recapitalization and financial assistance
by BGK (Bank Gospodarstwa Krajowego), by means of transfer of trea-
sury securities; official liquidation of government funds, for example, the
National Housing Fund or EU Surety Fund, and providing the opportuni-
ties for takeover of financial institutions through mandatory redemption of
shares by the State Treasury from shareholders.

The level of public debt remained stable at that time, with failure to take
stimulus actions being one of the main factors. The deficit in public sector
finance did not suffer any drastic changes in 2008 (see Tables 6 and 7).

Table 6. Public Sector Finance Balance in Poland (as % of GDP)

2006

2007

2008

2009

-3.6

-1.9

-3.7

-7.2

Source: Eurostat

Table 7. Public Debt (General Government Debt) in Poland (as % of GDP)

2006

2007

2008

2009

47.7

45.0

47.1

50.9

Source: Eurostat

Poland

Figure 1. Tools for the Government's Anti-crisis Program in Poland

1/1

l/l

LLI

OVE

SCH

UJ
X

t/>

Establishment of financial Stability Committee
comprising of 1 representative of the MF, NBP and MF*

Increase of guarantees securing bank deposits

Increase of guarantees securing bank deposits; Support
for linuiditv of financial institutions

Recapitalization of the banking sector

Consolidation guarantee and public sureties schemes

Recapitalization of Bank Gospodarstwa Krajowego

Creation of Social Solidarity Reserve

Increase of guarantees and sureties limits by State

^^^^^^^^^^^^Treasury ^^^^^^^^^^^^

*MF=Ministry of Finance, NBP=National Bank of Poland, KNF=Polish Financial
Supervision Authority

Source: Own study based on Grzegorz Golebiowski and Kamilla Marchewka-
Bartkowiak, "Financial crisis and public debt," in Financial crisis - selected issues
(Warsaw: Wydawnictwo Sejmowe, 2009).

The dramatic rise in public sector debt observed in many EU countries
creates a risk that the opportunities for economic growth will be limited, in
both the medium and in the long term. It may adversely influence the level
of individual consumption and the level of corporate investment. The debt
increase needs to be set by cuts in public spending and when they appear
insufficient, taxes need to be increased.

Despite the manifest rise in public sector deficit in Poland, and the rise
in public debt in relation to GDP in 2009, the current credit rating for Polish
government debt from Standard & Poor, Fitch and Moody's is an A. The sit-

Organized Crime and the Financial Crisis

uation in this respect is stable and this level has been sustained since 2007. 2
The deteriorated state of these linkages in 2009 urges the necessity to look
for budget savings and will force implementation of reform schemes within
public finances in the near future. The adopted budget act for 2010 provides
for numerous savings in spending as well as an increase of VAT up to 23
percent.

Table 8. Rate of GDP and Growth of Domestic Demand in 2009 (%, fixed
prices)

Consumption

Accumulation

Domestic
demand

Foreign trade

Years

Including

GDP

2009

2.1

2.3

1.9

-11.6

-0.8

1.0

-7.9

-13.6

1.8

K= Overall consumption, Ki=Individual consumption, Kz=Collective consumption,
A=Gross accumulation, Ni=Gross expenditure on fixed assets, E=Export of goods
and services, I=Import of goods and services.

Source: Poland 2010: Report on the state of the economy (Warsaw: Ministry of Econ-
omy, 2010).

From a macroeconomic perspective, the Polish economy coped quite
efficiently with the symptoms of the financial crisis. It lost its impetus only
in 2009 (see Table 8). Then, as a result of adjusting reserves to a reduced
level of economic activity, domestic demand ceased to be a key factor for
economic growth and its share in GDP became negative (see Table 9).

Table 9. Decomposition of GDP Growth in 2009 in Poland (%)

Consumption (Overall
consumption

Accumulation

Net export

GDP

1.8

-2.9

2.9

1.81*

* The GDP growth rate presented in the tables is calculated in accordancewith GUS
methodology. For the corresponding periods Eurostat announced: 6.2% (2006), 6,
8% (2007), 5.1% (2008), and 1.7% (2009).

Source: Poland 2010: Report on the state of the economy (Warsaw: Ministry of Econ-
omy, 2010).

Elzbieta Glapiak, "Rating for Poland may be downgraded," Parkiet, November 5,

2010.

Poland

In 2009, external demand (net export) replaced domestic demand as the
main driver for the economy and made a positive contribution over the year.
This is a characteristic feature of recession.

Sustaining a positive level of consumption in Poland's relatively large
internal market offers an opportunity to restore macroeconomic stability.
We also need to underline that investments related to Euro 2012 and inflow
of EU finds to Poland are significant.

Crime in Poland and Measures to Combat It

Crime has become a serious threat not only to national states gathered in
increasingly expanded social and economic organizations, but also globally.
It definitely contains an aspect of pathology that destroys the legal order and
undermines confidence in state institutions, fair competition and markets.

Even though crime has a long history in Poland as in other countries, it
was not until the 1990s that it began to flourish and enjoy a dynamic devel-
opment connected with herd behavioral patterns and organized forms. The
key driving force behind criminal activities was the destabilization resulting
from the wide scope of reforms aimed at transforming Poland from a com-
mand economy into a free market. Emerging criminal groups realized the
potential in the turmoil that accompanied the transition and which facili-
tated crime. It should be noted that regime transformation made the finan-
cial system collapse and hyperinflation rose to a peak over 600 percent in
1990 (it declinedg in subsequent years to around 32 percent in 1994).

In 1992, having taken into account the growing threat of crime, a special
group called "Marathon" was set up by the Police, with the aim of pen-
etrating criminal groups. A new unit presented an analysis which indicated
that there were 30 criminal groups active in Poland. They were involved in
smuggling (mainly cigarettes and alcohol) and dealing in electronic equip-
ment, fuel and cars. On January 1, 1994, the Organized Crime Prevention
Bureau in the Major Police Headquarters was established and then in 1997
the Drug Trafficking Prevention Bureau, following the surge in smuggling
and drug trafficking. The establishment of the Central Criminal Investiga-
tion Agency was the culmination for professional police units responsible
for taking on organized and illicit drug crime. The agency was officially
established on April 15, 2000 by the Police Chief Commandant.

Organized Crime and the Financial Crisis

It should be indicated that the Police is not the only organization dedi-
cated to fighting crime in Poland. Nevertheless it was the strongest forma-
tion of security services assigned to upholding public order. Other services
also tasked with combating criminal activities as part of their statutory
duties include the Internal Security Agency the Border Guard, the Customs
Service, the Central Anti-corruption Bureau, and the fiscal inspection and
tax administration authorities.

Contemporary crime has shifted away from its earlier fields of activity,
which had their origins in the regime transformation of the 1990s. The ear-
lier criminal groups were characterized by their centralized structures and
primitive methods of operation and created many smaller groups that oper-
ated jointly in a variety of fields, but in a more prudent and calculated man-
ner. Breaking up two major criminal groups from Pruszkow and Wolomin
did not eliminate crime, yet it considerably debilitated it and forced crimi-
nals to search for new methods and forms of illegal activities. So, in this
context, it is hardly surprising that the UN World Drug Report 2008 ranks
Poland among the countries with the lowest number of murders per 100,000
inhabitants. Nevertheless, it should be noted that within the period 1990-
2002 the activities of criminal groups led to the deaths of several hundred
people. These included Ireneusz Sekula, a former deputy prime minister of
Poland, Jacek Debski, the sports minister, and Police Chief Commandant
Jacek Papala, whose investigation has not yet been completed and those
responsible for the crime have yet to be brought to justice.

Observing recent trends provokes the following question: Are the state
authorities not very efficient or do criminals learn from their previous mis-
takes and operate skillfully in a world of criminal organizations thus avoid-
ing responsibility? This question is justified all the more because even when
members of organized criminal groups are put in jail, they remain in contact
with the outside world and enjoy protection guaranteed by criminal groups.
They also receive financial support for their families (coming from fees paid
by other group members or from operating a business owned by an impris-
oned person).

It is worrying that, this type of criminal activity was reported in a few
provinces of Poland in the entertainment and service business sectors in
2009-10, despite suppression of primitive forms of crime relating to collect-
ing extortion money. However, most criminals have changed considerably

Poland

and their methods of operation have evolved. By establishing a property
security agency or debt recovery agency they attempt to escape responsibil-
ity or to reduce it significantly in the event of victims reporting the crime. 3

Local criminal groups (frequently cooperating with partners from
abroad - especially from post-Soviet Eastern Bloc countries) have gained a
monopoly over people trafficking and have greatly increased their effective-
ness. Poland has become a transit center for women from the former Soviet
republics (mostly Belarus and Ukraine) from where they are sold on to
Greece, Austria, Germany, Ireland, the UK and the Scandinavian countries.

Just as importantly, there has been a decline in the number of non- Polish
citizens involved, both those suspected of committing the crime as well as
their victims (see Table 10).

Table 10. Data for Crimes Committed by Non-Polish Citizens and Affecting
Non-Polish Citizens in the Territory of Poland (suspects, victims)

COUNTRY

2007

2008

2009

Suspects

Victims

Suspects

Victims

Suspects

Victims

Armenia

121

118

Austria

Belgium

Belarus

354

206

142

Bulgaria

119

103

China

Croatia

Czech
Republic

Denmark

Estonia

Finland

France

Greece

Georgia

Report on operation of the Central Criminal Investigation Agency, KGP, Warsaw

2010.

Organized Crime and the Financial Crisis

Holland

Ireland

Israel

Kazakhstan

Lithuania

173

176

139

Latvia

Moldavia

Mongolia

Germany

193

690

168

434

164

308

Norway

Pakistan

Russia

172

169

180

Romania

170

134

Slovakia

Slovenia

Switzerland

Sweden

Turkey

Ukraine

588

160

398

459

137

USA

Hungary

United
Kingdom

171

147

Vietnam

Italy

TOTAL *

2293

2161

2141

1463

2034

1296

* In the "Total" column all non-Polish citizens have been taken into account includ-
ing some from countries not specified in this table.

Source: Own study using data from the Major Police Headquarters, Warsaw

During 2007-9, Ukrainian, Russian and German citizens were among
the largest group of suspects while the victims included German, Ukrai-
nian and UK citizens. However, it is difficult to discern what percentage of
the statistics refers to ordinary criminal acts which are not relevant to the

Poland

impact on crime in Poland. Nevertheless these acts may still be relevant due
to the high number of reported crimes committed by Polish criminal groups,
especially in cooperation with Russian-speaking partners. Based on statis-
tics dealing with extradition, we may make assumptions that a large group
of Polish nationals operate illegally outside the national borders of Poland
- notably in France, Spain, the U.S., Italy and Scandinavian countries.

Criminal groups in Poland are predominantly active in drug traffick-
ing and economic crime (which often involves public figures not previously
associated with crime). A significant number of crimes against property
were reported in 2007-9. Considering the financial crisis, concerns were
raised over a high rate of fraud (over 153,500 cases) and computer fraud
which maintained an unusually dynamic rate of progress over the whole
period examined (see Table 11).

Table 11. Crimes against property

Type of crime

2007

2008

2009

Total

Theft

183,283

182,711

No data

Theft after breaking into premises

142,543

124,926

134,612

402,081

Robbery

17,872

16,320

15,740

49,932

Theft with use of violence

1126

979

1026

3131

Racketeering and extortion

1315

1160

1168

3643

Unlawful appropriation

17,126

17,842

19,900

54,868

Telephone tapping

134

116

151

401

Fraud including swindling

50,398

49,424

53,720

153,542

Computer-related offences

322

472

673

1467

Destruction or damage to property

71,347

76,063

77,067

224,477

Vehicle hijacking

4695

4422

4305

13422

Theft in forest (timber)

1725

1888

1762

5375

Dealing in stolen goods

3734

3170

3075

9979

Unintentional dealing in stolen
goods

1200

1028

1126

3354

Source: Own study based on Polish crime statistics from the Major Police Head-
quarters covering the years 2007-9, KGP, Warsaw 2010.

Organized Crime and the Financial Crisis

Proceeds from criminal activities are primarily invested in:

a. Currency exchange offices - often used for money laundering

b. Loan and leasing companies - frequently granting conditional loans
which lead to the takeover of the debtor's assets due to extortionate
interest rates and default penalties

c. Commission houses and pawn shops - mainly pawn shops specializ-
ing in private motor vehicles, often involved in receiving stolen goods
and money laundering;

d. Companies providing logistics services - used for smuggling

e. Sports clubs - enabling money laundering or reclaiming undue VAT
(frequently used as a source of financing athletes without the need to
invest own funds derived from other proceeds)

f. Real estate development companies - facilitating money launder-
ing and financing investments using funds gained through criminal
activities (covering up the fictitious loans with real loans secured
from a bank)

g. Trading with land, both building and agricultural land - enabling
overpricing in transaction contracts

h. Forcing companies in financial difficulties to enter bankruptcy and
take over their fictitious or exaggerated debts

i. Nightclubs, discos, restaurants - facilitating drug trafficking and
money laundering; and

j. Escort agencies - a source of stable income and venue for transfer of
false invoices.

If proceeds of illegal activities are infused into the stream of commerce,
legalized and then increased through legal business operations, they become
assets used in legal transactions. This is a kind of added value which may
lead to blurring of illegal - in view of profitable business activities, or more
frequently, to expand illegal business on a larger scale (often in a illusory
optimization of legal and tax measures), with the strong support of experi-
enced legal, consultancy or tax companies.

Poland

The Financial Crisis and Organized Crime in Poland

The only surprise about the economic crisis of 2008 was that
it came as a surprise to so many. 4

It seems necessary now, more than ever before, to reconstruct
the financial system, in the public sphere and also within
individual households while supervising all the incoming
assets, at both domestic and international levels. 5

The financial crisis is an undeniable fact. The devastation it caused across
the world provokes thoughts of the necessity to change the concept of
social, economic and state development. The crisis inspired the need for a
new approach to problem-solving methods but, worst of all, it undermined
confidence in public institutions and human relations in all fields of busi-
ness. The number of crimes detected involving corruption among civil ser-
vants, protection payment or unlawful use of an official position in order to
gain financial benefit, clearly exposes the system's significant vulnerability
to abuse (see Figure 2).

In the new reality formed by the crisis it seems that criminal acts in
the financial sphere may be fully-fledged yet not completely diagnosed and
penalized. Peter Gottschalk divides financial crime into four main types:

a. Fraud: advance fee, bank, check, click, consumer, credit card,
embezzlement, hedge fund, identity, mortgage, occupation,
subsidy

b. Theft: art, cash, identity, intellect, inventory

c. Manipulation: bankruptcy, bid, competition, computer, cur-
rency, cyber, extortion, ghost, invoice, laundering, tax

d. Corruption: bribery, kickbacks, organization, public 6

Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy
(New York: Norton & Co., 2010), p. 1 .

5 Konrad Raczkowski, "Transnational organized crime. An economic security threat
in the Baltic Sea Region," Institute for Security and Development Policy, Stockholm Paper
(October 2010), p. 7.

Petter Gottschalk, Policing Financial Crime, Intelligence Strategy Implementation (Boca
Raton: BrownWalker Press, 2009), p. 15.

Organized Crime and the Financial Crisis

It is important to note that this simple division includes several types
of crimes which may bring profits only in the final stage of committing the
unlawful act.

Figure 2. Number of Corruption Crimes of Detected in Poland, 2007-2009

I 106

( 86
169

°18
□ 99

Sport related corruption
Economic corruption ^3*

Election corruption
Abuse of function
Paid protection

Bribery ^
Corruption of civil servants

-,64 2

■ 75I3

J 545

i 1307

12083
n2118

,2659

1 2639

.3134
5 3178

—2 321
J 2913

□ 2009
■ 2008

□ 2007

500 1000 1500 2000 2500 3000 3500

Source: Own study based on Polish crime statistics from the Major Police Headquar-
ters for 2007-9, KGP, Warsaw 2010

The financial crisis facilitated the advancement of crimes involving
trade in money and securities. Presumably new methods for detecting this
type of crime, using more advanced technical equipment and more efficient
schemes for sharing the information, have increased the statistical rates of
detectability which could have been underestimated in previous years. An
exceptional threat in this category of crime is that posed by counterfeit-
ing money and securities (see Table 12). As can be seen, there were 23,500
crimes of this kind committed with a marked increasing dynamic, during
the period 2007-9.

It should be underlined that, since 2009, the Polish Police have imple-
mented new IT and organizational tools to combat the crime of counterfeit-
ing money and to improve information sharing. To this end, people who
released forgeries into circulation were monitored, and bank reports indi-
cating signs of forged money were subject to analysis (rapid exchange of
information between banks and the police). The Polish Financial Supervi-
sion Authority and the Association of Polish Banks requested all bank head
offices to make optimization steps to shorten the time needed to report
banknote counterfeiting cases to the police.

100

Poland

Table 12. Crimes against Trading with Money and Securities

Type of crime

2007

2008

2009

Total

Counterfeiting of money and
securities

7163

7804

8556

23523

Fabricating information in
securities trade

Passing counterfeit money
into circulation or security

nrpviniKlv nntainpn ac an

IJLtVlUUjiy UU LClll I^U LlO till

original

425

221

231

877

Counterfeiting of official
security paper

Counterfeiting of official mark

Counterfeiting of
measurement tools

100

232

IN TOTAL

7724

8111

8907

24742

Source: Own study based on Polish crime statistics from the Major Police Head-
quarters 2007-9, KGP, Warsaw 2010

The police enjoyed success when counterfeit money was seized at the
production stage and thus before it was distributed and could enter into
circulation. It is crucial to point out that the Central Criminal Investigation
Agency of the Major Police Headquarters initiated proceedings in 2007 that,
in April 2009, resulted in the destruction of a group of dealers involved
with counterfeit euro banknotes, the largest and first ever in EU history. The
counterfeit currency distributed during the period 2002-8 numbered tens
of thousands of notes in denominations of 50 and 100 euros in a number
of countries including Spain, Holland, Poland and Italy. As a result of this
operation, 27 people were detained. This action ranked as one of the most
spectacular ones conducted by, and under the auspices of, Europol since its
establishment. 7

It is estimated that notes in denominations of 100 zloty, as well as 50 and
100 euro, are the notes most preferred by counterfeiters. The court proceed-
ings and the judgments handed down explicitly disclose that the produc-
tion of the counterfeit notes remained solely within Polish criminal groups.

Europol Overview - Crimes in Europe, Haga 2010, p. 33.

Organized Crime and the Financial Crisis

101

While the financial crisis persisted, from 2007-10, the financial mar-
ket was targeted for numerous unlawful actions. The entire capital mar-
ket on the Warsaw Stock Exchange, as well as the investment fund market,
reported numerous criminal activities, namely:

a. Manipulation of financial instruments by an organized group
of investors (artificial price creation for a given financial
instrument)

b. Frauds connected with sale offers of financial instruments and
securities offered without fair and accurate information on
financial standing of the issuer

c. Exploitation of confidential information to facilitate plans to
increase share capital, carry out investment on the real estate
market using abundant financial resources, forecast financial
results that are connected to previous periods or technological
modernization of a certain enterprise.

d. Reinvestment of proceeds of criminal activities into other finan-
cial instruments on the Warsaw Stock Exchange - in this way
covering traces of transactions made and consequently legal-
izing the capital. 8

Another significant category of crimes was reported in economic trade,
especially with regard to credit frauds (see Table 13). This type of crime has
been defined in Article 297 of the Penal Code, as follows: any person who
submits false documents to secure a loan, money credit, credit guarantee,
subsidy, aid or public contract, for himself or a third party, and those certify-
ing untrue information or unreliable, written statements regarding circum-
stances that have significant relevance to obtaining a loan, money credit,
credit guarantee, subsidy, aid or public contract is liable to a penalty of cus-
todial sentence of three months to five years. 9 It appears that even though
banks apply more efficient security measures when assessing credit risk,
the occurrence of this type of crime may grow in coming years. The modus
operandi for criminal activity is basically exploitation of false documents by
substituted persons.

Analysis of threats to the Warsaw Stock Exchange, KGP, Warsaw 2010, pp. 23-27.
See Art. 239 of the Penal Code, Journal of Laws of 1997 r., No. 88, item 553.

102

Poland

Table 13. Crimes against Trading

Type of crime

2007

2008

2009

Total

Abuse of confidence

795

539

551

1885

Loan frauds

5989

6098

6599

18686

Insurance frauds

195

Money laundering

167

180

159

506

Prevention or curtailment of
creditors' satisfaction

2380

1915

1692

5987

Leading to bankruptcy or
insolvency

138

Preferential treatment of selected
creditors

132

Unreliable keeping of
documentation

Usury

Prevention of tenders

209

Removal or counterfeiting of goods
labelling

139

639

590

1368

TOTAL

9855

9649

9835

29339

Source: Own study based on Polish crime statistics from the Major Police Head-
quarters 2007-9, KGP, Warsaw 2010

The other key factor contributing to the increase of loan frauds is the
financial crisis prompted the Polish Financial Supervision Authority to
introduce a great many restrictions concerning the granting of loans - a rec-
ommendation for foreign currency loans applicable since mid-2010 as well
as the one for loans in zloty applicable from December 23, 2010. 10 It implies
an increase in personal contribution (especially in the case of loans in cur-
rencies other than Polish zloty) and an increase of net household revenue
required when applying for a loan (this was also linked to amount of spend-
ing resources available) and an obligatory duty to purchase insurance for a
low contribution. This would, for example, increase the cost of a 75,000 euro
loan by 4000 euro.

Recommendation T regarding good practice with regard to management of the
risk of retail loan expositions, Polish Financial Supervision Authority, Warsaw 2010, pp.
7-10ff.

Organized Crime and the Financial Crisis

103

A third factor behind the increase in loan fraud is a combination of the
repayment problems faced by bank customers with existing loans and the
fact that timely repayment of instalments allows disbursal of a subsequent
advance on the loan. According to data from the Polish Financial Super-
vision Authority for the first half of 2010 the value of possible default on
consumption loans totalled 23.5 billion zlotys (about 5.6 billion euro) and
mortgage loans totalling four billion zloty (about one billion euro). 11

One of the criminal activities having to be tackled by the State Treasury
relates to fraudulent reclaiming of value-added tax (VAT). Owing to insuffi-
cient legislative regulations it is a relatively easy scam, conducive to embez-
zlement within intra-Community trade as well as intra-Community supply
of goods. 12 The most serious threats in relation to fraudulent reclaims in this
respect involve:

a. Use of a banking system to record fictitious economic transac-
tions in which financial resources are legalized and then trans-
ferred to tax havens

b. Significant fraudulent reclaim of VAT in transactions of inter-
national trade (direct marketing of goods without payment of
excise duty, carrying-out fictitious transactions based on forged
documents)

c. Decreasing liabilities with respect to due income tax or duty
customs value,

d. Large-scale fraudulent reclaim of VAT in trade involving scrap
metal, manufactured goods from the metal industry (fre-
quently combining legal and fictitious invoices with the inten-
tion to impede control)

e. Overestimating VAT together with an excise duty within ille-
gal production, smuggling and trade in tobacco and alcohol
products

Statistics of loan liabilities incurred in Poland, Polish Financial Supervision Author-
ity, Warsaw 2010, pp. 12ff.

12 For a basic description of carousel frauds in the EU countries, see Konrad Racz-
kowski and Artur Krukowski, "Management of Tax Security Knowledge in Intra-Com-
munity Trade," in Konrad Raczkowski, Walter Kego, Marian Zuber, eds., Different Faces
of Security: From Knowledge to Management (Stockholm: Institute for Security and Devel-
opment Policy, 2010), pp. 184f.

104

Poland

f. Organizing carousel frauds aimed at reclaiming VAT (by
repeated import of the same goods and then their sale by the
intermediary unaware of the scam to another dummy com-
pany that reports taking the goods abroad, which entitles it to
reclaim the VAT. After a few or several such transactions the
dummy company retaining the VAT disappears)

g. Fraudulent reclaim of VAT and excise duty typically in a simu-
lated trade with liquid fuels or another economic trade.

In 2010, having observed a massive scale of reclaim of VAT from the Tax
Office, law enforcement authorities undertook a series of actions to deter-
mine when the tax is due and when it is claimed on the basis of criminal
activity with the effect of fraudulent tax reclaim from the State Treasury.
There are several such tax investigations pending at this time and a large
number of similar cases are subject to prosecution or court proceedings.
While outlining the extensive scale of fraudulent VAT reclaim, it is worth
noting that in June 2010 the Internal Security Agency, in cooperation with
employees of the Fiscal Control Office and I Tax Office in Slask, succeeded
in a most spectacular detection of this crime in terms of financial losses and
damage inflicted. Seven individuals were detained and charged with accu-
sations of money laundering and operating in an organized criminal group.
An assessment from the investigation revealed that the group's activity
could bring an estimated loss to the State Treasury amounting to 100 million
zlotys, about 25 million euro. It was a classic example of a criminal organi-
zation operating by establishing a few business entities in Latin American
countries and then reporting fictitious trade of scrap metal to the value of
500 million zlotys accrued over just a few months. 13

In principle, the institutions in Poland responsible for preventing tax
crime (including VAT) are the tax administration authorities, fiscal control
and, first and foremost, the customs administration - not forgetting the
Police and the Internal Security Agency. The system of public institutions
needs to be modernized in order to be able to respond to the challenges of
tax crime in this new world. This could then lead to a reduction in the liabili-
ties due to the State Treasury. Such reorganization should be the product
of a reform of the whole public finance sector in Poland, which at the end

Information from the General Inspector of Financial Information concerning securi-
ties of financial resources on bank deposits, GIIF, Warsaw 2010.

Organized Crime and the Financial Crisis

105

of the second quarter of 2010, revealed a debt of 746.1 billion zlotys, corre-
sponding to 53.7 percent of GDP for the last four quarters. 14

Ultimately, it should be noted that committing criminal acts with the
assumption that an unlawful act will not be discovered requires both ade-
quate information and the knowledge of how to actually carry it out. Infor-
mation is a peculiar immaterial wealth which alongside economic progress
and the development of means and forms of social communication acquires
increasingly greater significance, transforming aspects of many tradition-
ally organized economies. 15 Information is assessed by measuring data val-
ues it creates and by measuring the quality of the data's contents. This per-
mits us to ascertain whether the information given for a particular purpose
is valuable or useless. 16 Information is the basis for making decisions and
precise information minimises the risk of taking actions that are not rooted
in fact. For this reason, during the financial crisis in Poland a strong increase
in crimes against information was observed, especially crimes involving the
infringement of correspondent secrecy, preventing or impeding the use of
information and violating information data (see Table 14).

Table 14. Crimes against Information Protection

Type of crime

2007

2008

2009

Total

Disclosure of state secrets

Disclosure of official and
professional secrets

133

121

155

409

Infringement of confidential
correspondence

616

694

982

2292

Preventing or impeding the use of
information

244

366

555

1165

Violation of information data

129

TOTAL

1033

1233

1771

4037

Source: Own study

Debt of public finance sector, Department of the Public Debt, Ministry of Finance,
Warsaw 10/12/2010, pp. 1-3.

15 Bogdan Stefanowicz, Introduction to IT (Warsaw: Akademicka Oficyna Wydawnicza
PIT, 1998), p. 31.

For a description of information converted to knowledge, see Konrad Raczkowski,
Knowledge management in customs administration in a system of socio-economic security (War-
saw: Difin, 2010).

106

Poland

Crime against information protection in Poland is also connected with
the intensification of a power struggle between certain groups and a decline
in work ethics. We can only assume that most such infringements will never
be reflected in statistics for individuals, because individual victims of such
crimes hardly ever decide to bring cases to court.

We may conclude that there are many types of crime committed in
Poland. The financial crisis has somehow fomented unlawful and herd
behaviour, at least in respect of fraud and similar abuses. The scale of finan-
cial crime appears far larger than previously assessed. The financial supervi-
sion authority in Poland, like similar bodies throughout the world, tolerated
embezzlements and speculative attacks carried out by banks and financial
institutions themselves. Therefore it became quite a challenge to undertake
actions against seemingly unethical, immoral and legally dubious (some-
times with conscious assumption to transgress law) transgressions by ordi-
nary citizens holding the illusory, if occasionally genuine, conviction that if
others do it, it cannot be unlawful.

The financial crisis in Poland is in fact a pentagonal crisis referring to
the crisis in finance, economy, global order, global elites (including national
elites) as well as civilization. 17

It may be observed that the financial crisis substantially drove the
dynamics for offences against trade in money and securities, economic
trade, information protection and property as well acts of corruption (see
Figure 3).

It appears that the low efficiency of measures taken by prosecutors'
offices and courts, attributed to delays in dealing with the cases, and con-
flicting legal interpretation of offences, may have provided an additional
inducement to unlawful but profitable activities. Deficiencies in the jus-
tice system, even in cases where the law enforcement authorities perform
effectively, will definitely enhance the significance of criminal cartels and
syndicates. Since these groups hold large, and legalized, funds, they will
continue to assume power and influence (aided by the imposition of arbi-
trary and appropriate legal solutions that favour them). The coming years
will show both the efficiency of methods adopted to combat the global

See Antoni Kukliriski, "Enigma of the 20th century," Newsletter of the Polish Economy
Society, with assistance of the Polish Association for the Club of Rome, PTE, Warsaw
6(50) 2010, p. 26.

Organized Crime and the Financial Crisis

107

crisis (interconnected with the economies of individual countries) and the
effectiveness of the preventive and systemic measures to be carried out by
Poland within its legislature and organizations.

Figure 3. Rank Characteristics of Different Types of Crime that Increased
during the Financial Crisis, 2007-9

Against trade in
money and
securities

Counterfeiting of money and
securities

Counterfeiting measurement
tools

Against economic
trade

Loan frauds

*■ Corruption

► Corruption of civil servants

Against information
protection

Infringement of correspondence

Impediments to the use of
information

Violation of information data

*■ Against property ► Internet-related fraud

Source: Own study

Conclusions and Recommendations

In summary of the opinions and judgments presented here concerning the
financial crisis in Poland and the operation of criminal groups, we may
sketch two pictures of the situation. The first one appreciates the value of
actions initiated by public authorities in confrontation with financial and
economic threats. The other focuses on pure and measurable 18 indicators of

18 Peter M. Gutmann, "The Subterranean Economy: Redux, "in Wulf Gaertner and
Alois Wenig, eds., The Economist of the Shadow Economy (Berlin: Springer Verlag, 1985), p. 15.

108

Poland

mid- and long-term trends for events triggered by taking definite decisions
to implement changes, systemic reforms and preventive measures (in terms
of prevention the results could well be extremely disappointing).

The financial crisis showed that our familiar image of the world at the
end of the 20th century will change forever. Therefore, each country should
search for new patterns and standards not corresponding to the previous
ways of thinking but grasping future innovations. We cannot allow our-
selves to be locked into current thinking as its formulas and tactics will soon
be outdated. In addition, organized crime has been regarded as the fastest
evolving business sector for a number of years. It is estimated that global
profits from this activity may amount to US$500 billion per year. For this
reason, we should not view the police statistics optimistically, even if they
appear to indicate a decline in crime. The apparent decline is undoubtedly
due to the statistics only relating to specific areas, for example, the num-
ber of murders committed. However this kind of interpretation of statistics
would be naive, arising, as it would, from a lack of systemic analysis of the
economic return rate for costs incurred in committing a given offence.

Criminals have learned a lesson from history that the most brutal crimi-
nal behavior rarely brings financial benefits (more often it is simply a goal
in itself) and they may make more money from economic activities that are
legal, semi-legal and illegal. Certainly the black economy stemming from
such activities is currently a real problem and its magnitude is hard to esti-
mate unequivocally. P. M. Gutman defines this type of economy (informal,
unregistered) as a wide spectrum of economic activities which defy fiscal
registration and to a large extent they are not included in the statistics.22
This definition implies a possibility to conduct a two-factor analysis in
which informal economy represents economic activity not reported in the
statistics and whose size is not indicated in official statistics related to cal-
culating the domestic product, even through application of differentiated
calculating methodology. 19 Therefore it also appears desirable to include
postulates when calculating domestic product, thus providing an opportu-
nity to assess the black economy (unofficial economy).

At the same time, the scale of the economic crisis and its implications
may be so globally immense in the future that recommendations regarding

Konrad Raczkowski, Knowledge management in customs administration in a system of
socio-economic security, (Warsaw: Difin 2010).

Organized Crime and the Financial Crisis

109

the prevention of illegal phenomena need to be systemic - down to the level
of individual countries. For this reason it becomes necessary to undertake
the following preventive initiatives.

1. To implement reforms of the public finance sector (whilst
also reorganizing the organizations and task structures of the
administration itself).

2. To introduce a new model of management in the public
domain that is oriented towards knowledge management and
knowledge materialization (beginning with the arduous but
necessary creation of a new organization culture in society
and new state structures adjusted to both current and future
assignments).

3. To implement precise and coherent legislative regulations to
categorize unlawful acts that are not completely identified or
included in currently applicable law (tight cooperation with
the European Union as to formulating common standards; to
implement simplified principles for settling accounts by tax-
payers and mitigating sanctions for errors that were not the
result of intentional attempts to perpetrate a criminal act).

4. To facilitate more effective cooperation and information sharing
between national law enforcement authorities and security and
public order services and to improve international cooperation.

5. To establish the Financial Security Institution (FSI) to replace
fiscal control offices and incorporate the tax-customs appara-
tus, the Police, Internal Security Agency and internal analysts
of the financial markets (and assigning new powers and advi-
sory roles, management control and supervision control over
the organization of budget units and budgets for local govern-
ment plants, executive agencies, budget economy institutions,
state special funds and the entire capital market; to perform a
key financial security advisory function for the prime minister
and the president of the Republic of Poland).

6. To replace the basic index used to measure economic progress
(GDP) with new development measures that take heed of issues
of economic growth (including the unofficial economy), social
justice, quality of governance and economy management as
well as public matters, such as issues concerning the protection

Poland

of cultural values and care for nature. For example, the index
gross national happiness - National Happiness.

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